United Airlines' bankruptcy alert

UNITED Airlines today became America's second major carrier in a week to warn it is on the brink of bankruptcy, saying it may need to file for Chapter 11 protection from its creditors this autumn.

'Unless we lower our costs dramatically, filing for bankruptcy protection will be the only way we can ensure the company's future and the continued operation of our airline,' chief executive Jack Creighton said in a statement released overnight.

UAL's problems are stark. It lost $510m (£332m) in the first quarter of the year following 2001's £2.1bn loss and it has $935m of repayments due to lenders this autumn as part of its debt pile matures.

Its warning come three days after America's sixth-largest airline, US Airways, went to court to gain Chapter 11 protection to enable it to continue flying. A spokesman for UAL, the second-largest carrier in the US after American Airlines, said today: 'We have two options as we are at a crossroads financially. We can change our business plan or file for bankruptcy protection. We wish to avoid Chapter 11 and so we are working with the unions and their leaders on a wage reduction programme.'

Conceding that workers, half of whom own stock in the company, have so far dismissed the airline's plans to cut their wages, the spokesman denied putting unfair pressure on staff: 'It is not a threat. It is a reality. We are facing a liquidity crunch by the end of the year.'

Others said UAL's warnings are designed to put pressure on the Bush administration to wave through $1.8bn of federal guarantees to enable the airline to raise a $2bn loan.

US Treasury Secretary Paul O'Neill conceded that fundamental problems are besetting the industry when he said he believed airlines were being hobbled by the 'excessive cost' of insurance premiums.

The turmoil among US carriers is turning the spotlight on the finances of Britain's transatlantic carriers. British Airways stock has recently been languishing at 10-year lows, even lower than the level they plunged to after the 11 September terrorist attacks.

UAL's British code-sharing partner in the worldwide Star Alliance of airlines is bmi british midland. Chairman Sir Michael Bishop said UAL's problems would not affect its customers, and added: 'We are sure United will still be a strong presence on the North Atlantic.'